Real estate market cooling in two biggest cities

Sydney and Melbourne are still experiencing an “easing trend”, despite property price growth jumping back during June.

Sydney’s median dwelling price climbed 2.2 per cent last month, while Melbourne’s increased 2.7 per cent, according to CoreLogic.

That marked a significant shift from the May results, when Sydney fell 1.3 per cent and Melbourne fell 1.7 per cent.

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Sydney cooling more than Melbourne

CoreLogic’s head of research, Tim Lawless, said the June revival can partly be explained by seasonal factors.

“Adjusting for this effect suggests an easing trend in housing value growth has persisted through the second quarter of 2017,” he said.

“This trend towards lower capital gains across the combined capitals index is mostly attributable to softer conditions across the Sydney housing market, where quarter-on-quarter growth was recorded at 0.8 per cent over the June quarter; down from 5.0 per cent over the March quarter.

“In contrast, the quarterly trend in Melbourne has been more resilient, with growth easing from 4.2 per cent over the March quarter to 1.5 per cent over the three months ending June.”

Treasurer welcomes housing slowdown

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Treasurer Scott Morrison said the CoreLogic statistics suggest that the Sydney and Melbourne markets will experience a “safe landing” rather than a “crash landing”.

Mr Morrison said that was partly due to APRA, the banking regulator, pressuring lenders to “put the brakes on interest-only lending” – a move he said was producing positive results.

“So to get the balance back in favour of principal-and-interest borrowings… I think was a very wise move from the regulators, fully supported by the government,” he said.

“Now we are seeing the outcomes of that now, that very careful approach that we have been encouraging and supporting, now having this impact in the markets in Sydney and in Melbourne where things are easing off but to a safe landing, not the hard landing that Labor’s policies would deliver.”

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What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

How much deposit will I need to buy a house?

A deposit of 20 per cent or more is ideal as it’s typically the amount a lender sees as ‘safe’. Being a safe borrower is a good position to be in as you’ll have a range of lenders to pick from, with some likely to offer up a lower interest rate as a reward. Additionally, a deposit of over 20 per cent usually eliminates the need for lender’s mortgage insurance (LMI) which can add thousands to the cost of buying your home.

While you can get a loan with as little as 5 per cent deposit, it’s definitely not the most advisable way to enter the home loan market. Banks view people with low deposits as ‘high risk’ and often charge higher interest rates as a precaution. The smaller your deposit, the more you’ll also have to pay in LMI as it works on a sliding scale dependent on your deposit size.

What is a guarantor?

A guarantor is someone who provides a legally binding promise that they will pay off a mortgage if the principal borrower fails to do so.

Often, guarantors are parents in a solid financial position, while the principal borrower is a child in a weaker financial position who is struggling to enter the property market.

Lenders usually regard borrowers as less risky when they have a guarantor – and therefore may charge lower interest rates or even approve mortgages they would have otherwise rejected.

However, if the borrower falls behind on their repayments, the lender might chase the guarantor for payment. In some circumstances, the lender might even seize and sell the guarantor’s property to recoup their money.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

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A mortgage default occurs when you are 90 days or more behind on your mortgage repayments. Late repayments will often incur a late fee on top of the amount owed which will continue to gather interest along with the remaining principal amount.

If you do default on a mortgage repayment you should try and catch up in next month’s payment. If this isn’t possible, and missing payments is going to become a regular issue, you need to contact your lender as soon as possible to organise an alternative payment schedule and discuss further options.

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